June 10, 2009

Here are some paragraphs from the Wall Street Journal's, U.S. Foresees a Thinner Cushion of Coal, by Rebecca Smith. The article does well to apply economic statistics to the costly commodity. Most of the data and statements point to coal's inability to be truly sustainable and the up and coming popular investment in alternatives, particularly gas powered electricity. In addition to putting together advocates and critics of one of the dirtiest forms of energy in the nation, the article contains two great graphs and images.

No one says the U.S. is facing a coal shortage. But the emerging ranks of "peak coal" theorists argue that current production levels may be unsustainable and, if anything, create a false sense of security. David Rutledge, an electrical-engineering professor at the California Institute of Technology who has studied global coal production, figures the U.S. has about half as much recoverable reserves as the government says, which would work out to about 120 years' worth.

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Recession has reduced demand from the two biggest users of coal, electricity producers and steelmakers. A proposed law capping greenhouse-gas emissions could make coal-generated electricity -- currently one of the cheapest power sources --significantly more expensive. At the same time, the country has found itself awash in cleaner-burning natural gas after recent big discoveries, prompting some power companies to pull the plug on proposed coal plants and shift toward gas-fueled power generation.

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Last year, the U.S. Geological Survey completed an extensive analysis of Wyoming's Gillette coal field, the nation's largest and most productive, and determined that less than 6% of the coal in its biggest beds could be mined profitably, even at prices higher than today's.

"We really can't say we're the Saudi Arabia of coal anymore," says Brenda Pierce, head of the USGS team that conducted the study.

For the Gillette study, USGS engineers, geologists and economists spent three years analyzing data from 10,200 drill holes, the most comprehensive study ever attempted of the region. The team concluded there are 201 billion short tons of coal in the Gillette field. Environmental rules and physical challenges put much of that out of reach, leaving what they figured were 77 billion short tons of recoverable coal.

Little is presently worth mining. Analyzing coal beds that contained 82% of the Gillette deposits, the team determined that with coal selling for $10.50 a ton, the prevailing price two years ago, less than 6% of the coal could be extracted profitably enough to leave mining companies an 8% rate of return.

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In 2007, the EIA said the U.S. had a "demonstrated reserve base" of nearly 500 billion tons of coal. It regarded 267 million tons of that as "economically recoverable," enough for 240 years.

Even Mr. Warholic, the EIA analyst, says he's skeptical about the results. "It's kind of crazy" to postulate how long U.S. reserves will last, he says. "It could be 110 years or 225 years or something completely different. It all depends on your assumptions."

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After many decades of mining, some of the country's coal fields are showing their age. "What's left to mine is not as easy as what we mined even 10 or 20 years ago," says Janine Orf, spokeswoman for Patriot Coal Corp. in St. Louis. "The seams are getting thinner and there are more limestone intrusions."

Coal's big buyer, the power industry, has grown increasingly nervous about securing reliable suppliers for power plants that often have a useful life of 50 or 60 years. Plants fine-tune their equipment to burn the coal they expect to receive and to remove its particular pollutants from the waste stream. That makes it problematic to switch suppliers.